News / Integrators and 3PLs watch nervously as Amazon starts to stretch its delivery legs

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While talk of Amazon’s growing logistics capabilities has centred on the threat to its principal logistics service providers, UPS and FedEx, a new report from Armstrong & Armstrong suggests it is the 3PL sector that should be most concerned by the e-commerce giant’s increasing reach.

“If Amazon does choose to try to become a major parcel player, it would be embarking on that endeavour even as UPS and FedEx invest massive figures in their own technology, automation, facilities, assets and capacities,” the report says.

“Entering an oligopolistic market is an exercise in game theory, so Amazon should tread carefully. With its ‘coopetition’ relationship with FedEx and UPS, Amazon could risk upsetting pricing negotiations and access to service as it gains strength as a rival.

“This could be another reason to develop its strengths as a 3PL rather than a parcel carrier,” it adds.

It calls 2017 the landmark year for Amazon’s 3PL business, as it was the point at which third-party sellers outsold Amazon on its own platform, providing the basis for it to expand its “Fulfilled by Amazon” (FBA) services to e-commerce shippers, particularly as it continues to “raise the bar for fulfillment speed”.

The report adds: “This is obviously a competitive advantage against other retailers – two days are better than five –but it is also a way to attract more of its own sellers to FBA.

“If sellers can’t find a way or a 3PL to offer two-day (or less) shipping, then FBA becomes an increasingly attractive option. Essentially, this makes it more challenging for shippers to operate without 3PLs in general, and Amazon in particular.”

However, it also outlines two other possible scenarios under which Amazon could expand its 3PL services, a “more aggressive” strategy would see it expand its management activities to non-Amazon warehouses, as well as managing goods transport from third-party sellers’ warehouses to consumers.

“Third-party sellers will assign Amazon-specific inventory within their warehouses, and manage that inventory through Amazon’s warehouse management system (WMS), which will be installed on the seller’s servers. The service was piloted on the [US] west coast with reports of nationwide rollout this year,” it says.

In parallel Amazon would ramp up its NVOCC offering to e-commerce shippers.

But the report also foresees a “most aggressive” strategy. That would see Amazon cease simply being a 3PL for the e-commerce sector and break into traditional supply chains, which would likely involve the acquisition of a major incumbent, echoing last year’s rumours that it had been talking to XPO Logistics.

“The pairing could be a good one,” says the report. “XPO is already strong in e-commerce, retail, and big-box last-mile, all of which fit with Amazon’s strategy, and the company’s numerous acquisitions have resulted in rapid growth and a wide range of services in the US and Europe, which could pair well with Amazon’s cross-border European FBA network.

“Its domestic transport management business would be a match-up similar to that of UPS/Coyote and provide Amazon with a way to harness capacity during peak periods. DSV, Kerry Logistics and CEVA are other possibilities,” it adds.

Amazon yesterday reported its quarterly figures and predicted sales to grow 10%-18% in the first quarter. In the three months to the end of the year, which included Christmas, profits rose 63% to $3bn, while revenue was up 20% to $72.4bn.